--%>
Assignment Help - homework help

Effect of shipping costs

Assume that pound is being pegged to the gold at 6 pounds per ounce; on the other hand the franc is being pegged to the gold at 12 francs per ounce. Which, of course, states that equilibrium exchange rate must be the two francs per pound? If existing market exchange rate is 2.2 francs per pound, how you would take benefit of this condition? Explain about the effect of the shipping costs?

E

Expert

Verified

Assume that you required buying 6 pounds by using the French francs. If you will buy 6 pounds directly in foreign exchange market, it can cost you 13.2 francs. Otherwise, first you can buy an ounce of gold for 12 francs in France and then ship it to the England and sell it for the 6 pounds. Now, it will only cost you the 12 francs in order to buy 6 pounds. It is therefore valuable to ship gold as a result of the overpricing of the pound. Evidently, you may have an arbitrage profit by selling the 6 pounds for 13.2 francs in foreign exchange market. Arbitrage profit can be 1.2 francs. Up till, we have assumed that the shipping costs don’t exist. In case, it costs more than 1.2 francs to ship an ounce of gold, there may be no arbitrage profit.

   Related Questions in Financial Accounting

  • Q : Type of bond instrument You are an

    You are an investment banker who is advising a Euro bank about the new international bond offer it is considering.  Proceeds are to be used to fund Eurodollar loans to the bank clients.  Specify the type of bond instrument you would recommend that bank shoul

    		•
  • Q : Discrimination to women and minority

    Most of the organizations have established policies to remedy discrimination whenever hiring women and minorities. Discuss whether you feel that affirmative action programs, reverse discrimination, and criteria of comparable worth are suitable forms of remedy. You mus

    		•
  • Q : Why Liabilities are so important Why

    Why are Liabilities are so important? Write some of its Significance in Accounting?

    		•
  • Q : Controlling the translation exposure It

    It is, normally, not possible to fully remove both the translation exposure and transaction exposure.  In some cases, eradication of one exposure will also eliminate the other.  However in other cases, removal of one exposure really creates the other. 

    		•
  • Q : Representative office of any bank

    Explain what is meant by the Representative office of any bank.

    		•
  • Q : Capitalize earnings To transfer amounts

    To transfer amounts from retained earnings to contributed capital through stock dividends. The effect is to decrease retained earning and increase the stock account. Stock dividends also permanently retain the earnings in the corporation by moving it out of the retain

    		•
  • Q : Benefits for a company to cross-list

    Explain the benefits you can think of for a company to (a) cross-list its equity shares on more than one national exchange, and, (b) to source new equity capital from foreign investors as well as domestic investors.

    		•
  • Q : State Return on Investment or ROI

    Return on Investment (ROI): It is a performance measure employed to calculate the efficiency of an investment or to compare the effectiveness of a number of various investments. To compute ROI, the advantage (return) of an investment is divided by the

    		•
  • Q : Services offered by international banks

    Discuss some of services which international banks offer to their customers and market place.

    		•
  • Q : Digital Image Processing Homework Using

    I am just trying your services to get one very small project done for Digital Image Processing Homework Using Matlab.I need the code and the approach of the code.The Homework is :A. Import a color image.B. Convert color image to gray-level image.C. create

    		•